A Dynamic Analysis of Differential Incidence in a Two-Class Economy with Public Capital

Within a two-class growing economy with public capital, a comparative dynamic analysis of differential shift from a wage income to a corporation profit tax is carried out to appreciate the distributional effects of tax substitution on capitalists and workers, and to set out the conditions which determine the magnitude of the tax shifting. It is also shown that the differential tax substitution induces decreased savings and capital shallowing lowering, the private capital/labour ratio, and that a higher rate of a corporation profit tax increases the tax shifting and vice versa in the steady state equilibrium with both classes existing.